NPAs : Asset quality remains a niggling worry for Indian banks

Moneycontrol Bureau :Nov 05, 2014, 08.46 AM IST 

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Maintaining its cautious view, global rating agency Moody's recently said that it 



remains negative on Indian banks on the back of high leverage in the corporate 



sector.

Fears of worsening asset quality continue to haunt Indian banks. While poor asset quality is usually synonymous with public-sector lenders, private banks don’t seem to be out of the clutches of bad loans either. The list ranges from banks like State Bank of Bikaner and Jaipur  and State Bank of Travancore  to bluechip like ICICI Bank .

To begin with,  Indian Overseas Bank reported loss in the second quarter of the current fiscal year due to higher tax expenses and provisions for bad assets. The public sector lender made provisioning for bad loans to the tune of Rs 892.38 crore versus Rs 619.90 crore in the same quarter a year ago. Its asset quality worsened as gross non-performing assets (NPAs) jumped to 7.35 percent from 4.65 percent a year ago. Net NPAs also almost doubled to 5.17 percent from 2.83 percent a year ago.

The stock is likely to face heat as global rating agency Standard & Poor's has lowered the credit rating of IOB to BB+. The rating indicates speculative grade following IOB's asset quality deterioration. It expects the bank's asset quality to remain remain weak over the next 12 months.

While Union Bank of India ’s (UBI) net profit rose 78 percent in the quarter gone by, the picture on asset quality front didn’t seem too bright. Its gross non-performing assets (NPA) jumped 42 basis points quarter-on-quarter and 105 bps year-on-year to 4.69 percent. Net NPA climbed 25 bps Q-o-Q and 56 bps Y-o-Y to 2.71 percent in July-September quarter.

The subsidiaries of India’s largest public sector bank  State Bank of India (SBI) – State Bank of Bikaner and Jaipur (SBBJ) and State Bank of Travancore (SBT) also saw marginal rise in bad loans.

SBBJ’s gross NPA rose to 4.24 percent versus 3.6 percent and net NPAs was at 2.49 percent versus 2.1 percent, Q-o-Q. SBT was stung by higher NPA provisions. Its gross NPA increased to 5.11 percent from over 3.5 percent of the total advances, on a year-on-year basis. Net NPA also rose to 3.2 percent from 2.07 percent a year ago.

Their parent SBI is yet to announce it Q2FY15 earnings. In Q1FY15, the bank’s overall asset quality continued to be stable. Gross non-performing assets (NPA) slipped 5 basis points sequentially and 66 bps on yearly basis to 4.90 percent while net NPA fell 17 bps year-on-year (up 9 bps quarter-on-quarter) to 2.66 percent in Q1FY15.

Maintaining its cautious view, global rating agency Moody's recently said that it remains negative on Indian banks on the back of high leverage in the corporate sector.

" Our outlook for the country's banking system remains negative , as it has been since November 2011. The negative outlook reflects our view that high leverage in the corporate sector could prevent any meaningful recovery in asset quality, notwithstanding a moderate rebound in economic growth," the agency said in a note.

It further added that the negative outlook pertains mainly to the state-owned lenders which represent more than 70 percent of total banking system assets.

But largest private sector lender ICICI Bank is also not spared. The bank met expectations on profit and net interest income front (NIM) but asset quality weakened. Its gross NPA rose 4 basis points on a Y-o-Y basis and 7 bps sequentially to 3.12 percent and net NPA increased 11 bps on yearly basis and 9 bps quarter-on-quarter to 0.96 percent.